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Mutual Fund Review: Religare Tax Plan

Expect downside protection with good returns during market rallies

A relatively new fund, it has managed to provide downside protection to investors with good returns during market rallies. This is a well diversified fund that currently has 57 stocks in its portfolio, with a large-cap skew accounting for 62 per cent allocation. However, in 2008 this fund had 66 per cent exposure in mid- and small-cap stocks and yet managed to counter the market fall that year. Says Vetri Subramaniam, Head - Equity Funds; "In this fund our approach to picking mid-caps has been biased in favour of growth, quality of balance sheet and strength of underlying cash flow rather than sheer undervaluation plays which are often accompanied by weak balance sheet metrics."

 

The fund does take an aggressive stand from time to time. For instance, HPCL accounted for 9 per cent allocation in December 2008, which Subramaniam justifies was in the context of the overall sector exposure and was manageable risk relative to the benchmark. Though the fund's benchmark is BSE 100, the fund considers a universe of 306 stocks and according to the fund manager the base universe is the BSE200, to which companies from CNX Midcap Index get added. It also adds hand-picked stocks from the BSE Small Cap Index and BSE PSU Index, with this universe reviewed every quarter. By staying away from metals and increasing exposure in FMCG stocks in 2009, the fund managed 83 per cent returns that were better than the category, average of 82.

 

Our view


The fund manager stays away from the momentum game and avoids getting into cyclicals, which may check its return potential during market rallies. Stock picking is the driver for the fund's superior performance. For instance stocks such as Nestle India, HPCL and ITC were among the 38 stocks in the portfolio for six months or more and yet experienced a fall lower than that of Sensex in 2008. The fund manager's ability to spot mid-caps that have the potential to become large-caps has boosted performance. The fund has low cash reserves, which can limit its ability to invest in opportunities that may arise.

 

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